Mumbai: Indian stocks made a smart recovery on Thursday with BSE Sensex rising 146 points to close at 19964.03 points on heavy buying in RIL and ONGC as diesel prices were virtually deregulated in a key economic reform measure.

After losing 169 points yesterday on RBI Governor D Subbarao tempering rate cut hopes, Sensex on Thursday shrugged off weak initial cues after oil marketing firms were authorised to make small price correction in diesel from time to time.

The 30-share Sensex closed with a gain of 146.40 points to settle at 19,964.03 points as RIL and ONGC jumped over 3 percent each. The broad-based NSE index Nifty rose by 37.35 points, or 0.62 percent, at 6,039.20.

Refinery giants, ONGC and Reliance Industries were the top gainers from the Sensex and contributed more than 80 points to the index rise. IOC, HPCL, OIL and BPCL also gained.

"...a step in right direction as it will help government to reduce pressure on fiscal deficit. Both upstream and downstream PSUs will stand to gain," Motilal Securities said.

Diesel prices in all probability may be hiked in the first instance that can be as early as tonight following the government decision that might prune the subsidy bill.